Populist politics mess up Thailand’s biggest crop

IN FEW other countries is self-image as bound up with one crop as it is in Thailand with rice. The country’s fragrant Hom Mali grain, in particular, has become justifiably famous among types of jasmine rice. For 30 years or more the country has been the world’s biggest rice exporter.

Now, however, its pre-eminence is under threat. The country’s most respected economic think-tank, the Thailand Development Research Institute, recently reported that exports had fallen by 44% year-on-year since January, making it almost certain that the country would be knocked off its perch as the number-one exporter by either India or Vietnam. This is alarming exporters and has an unsavoury political taste to it. To many, it is the consequence of a populist new subsidy for rice farmers, who form a bedrock of support for Yingluck Shinawatra, the prime minister elected by a landslide a year ago.

Under the “rice-mortgage scheme”, introduced last September, the government buys rice direct from farmers at about twice the normal market price; 15,000 baht (about $500) a tonne for ordinary white rice and 20,000 baht for Hom Mali. This benefits mostly small-scale rice farmers in Thailand’s poor rural north-east and central plains, a constituency fiercely loyal to the ruling Pheu Thai party of Ms Yingluck and the former prime minister, her elder brother Thaksin Shinawatra.

According to Vichai Sriprasert, head of Riceland International, a family-run company that has been selling abroad since the 1930s, only twice, in 1974 and 2008, have rice prices on the open market reached the levels now being paid by the Thai government; the normal range is $200-300. Not surprisingly, Thai farmers are eagerly selling their rice at the newly inflated price to the government, which is stockpiling it.

However, what may be a bounty (at least in the short term) for farmers is proving disastrous for rice exporters, who tend to support the opposition Democrat Party and its rival policy of income support for rice farmers. The stockpiling leaves little for the private exporters such as Mr Vichai to sell abroad. What rice he can get his hands on costs over $100 more a tonne than the same rice from India or Vietnam—partly because India is also benefiting from a weakening currency. Customers are therefore turning to those countries instead. Mr Vichai says that, like other exporters, he could go out of business unless the scheme is changed.

The lack of transparency in the government’s rice-buying binge risks further distorting the market. It is unclear how much the government is stockpiling at its warehouses (guesses suggest it could be 10m tonnes), nor is it known when or at what price rice will be released onto the market. So far, critics say, the government appears to have made the mistaken assumption that hoarding rice will push up the price of rice on international markets. Eventually, they note, it may simply run out of warehouse space, rendering the whole scheme unsustainable. As for the supposed benefits to farmers, there are suspicions that much of the money is lining the pockets of brokers, millers and other middlemen.

For the moment the government is sticking to its guns. Mr Thaksin, who still wields considerable power from outside Thailand, has suggested that the stockpile could be sold abroad without the help of private exporters. But if the new scheme proves unworkable, the Democrat Party might have an opportunity to sow seeds of discontent in Mr Thaksin’s backyard.